Dipanka Dasgupta's February Lost Legacy Prize

“Greed, of course, is a strong expression, bearing as it does the connotation of sinful behaviour. To the extent, though, that one is sitting on judgement against the background of market-driven societies, a paradox of sorts seems to arise. In this context, one cannot fail to recall one of the most frequently quoted sentences from Adam Smith’s Wealth of Nations: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

Smith, of course, may not have had market economies alone in his mind when he wrote these lines. It was a broader statement, indeed, for he was explaining a natural propensity for barter among civilized human beings. The latter acquire from others objects for their sustenance not by brute force, but through exchange based on mutual consent. Moreover, the consent in question is guided by self-interest. Or, as Smith points out, “Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer....” (One wonders, of course, if British colonial rule conformed to Smith’s perception of civilized behaviour.)

While Smith’s notion of self-interest cannot be identified with greed by any means, the dividing line between the two concepts turns imperceptibly thin once we move on to market-driven economies or capitalist societies. The driving force underlying the capitalist mode of production happens to be profit and, even without Marx’s insight, one ought to be able to appreciate the fact that more profit is necessarily preferred to less. Or, to link it to Smith’s wisdom, a capitalist’s self-interest lies in profit-making, and it is quite pointless to set an upper bound on the volume of profit that capitalist enterprises might desire. When an excess of revenue over cost constitutes the bull’s eye, the larger the excess, the happier is the man taking his aim.”

CommentThere is much else in Dipankar Dasgupta’s article (follow the link to read it). I praise Dipankar for his (?) appreciation of the true conclusion from Adam Smith’s famous paragraph of ‘the butcher, the brewer, and the baker’, which is about the ‘propensity to truck, barter, and exchange’ for mutual advantage, and not an assault of the moral behaviour of benevolence, as some badly informed people continue to repeat, possibly because they read only the short quotation and not the second chapter of Wealth Of Nations.

But Dipankar avoids that error. He also avoids the crass error (not too strong an expression, because the error is grossly crass) in confusing Adam Smith’s self-interest with selfishness. However, I do not agree that the distinction between selfishness and self-interest is “imperceptibly thin” in capitalist societies (a different form of market-driven society to that observed by Smith in mid-18th century Britain), particularly as Dipankar sees the profit motive as being the essential trigger for the change.

The characteristic difference in markets undergoing societal changes is that activities which begin as highly profitable tend to become less so as new entrants into those markets arrive and through competition drive down the rate of profit (I discussed this on Lost legacy recently). Capitalists engage in ever finer divisions of labour, and the outsourcing of inputs in longer supply chains, to drive down unit costs, which means price reductions for consumers and rises in their real incomes, while growing employment drives up their money incomes at the expense of declining profits.

The notion that there is an ever lasting rise in profit rates for bloated capitalists (more like salaried managers with share options, and dividends for shareholders, the majority of which are pension funds) is mythical, except in the current ‘good thing’ (derivative innovators) where large earnings attract finance specialists who drive down bountiful profits in time, until the next ‘good thing’ arrives. There is also the inevitable ‘bust’ cycle that ends every boom and bubble.All this is despite individuals craving ‘more’ against the realities of the eventual ‘less’. And it is this psychological ‘delusion’ that keeps the economy ticking over (it keeps soldiers going in the heat of battle – ‘it won’t happen to me’…).

Technological possibilities are not ending; new ‘good things’ are on the horizon.

Smith puts it well:

“And it is well that nature imposes upon us in this manner. It is this deception which rouses and keeps in continual motion the industry of mankind. It is this which first prompted them to cultivate the ground, to build houses, to found cities and commonwealths, and to invent and improve all the sciences and arts, which ennoble and embellish human life; which have entirely changed the whole face of the globe, have turned the rude forests of nature into agreeable and fertile plains, and made the trackless and barren ocean a new fund of subsistence, and the great high road of communication to the different nations of the earth. The earth by these labours of mankind has been obliged to redouble her natural fertility, and to maintain a greater multitude of inhabitants.” (TMS IV.ii.10: p 183)

And Dipankar Dasgupta gets these thought mostly right. It is great to see an Indian economist understands these matters better than the majority of mainstream US and UK economists.

For this article Dipankar Dasgupta is awarded February's Lost Legacy Prize.